WWD.com/beauty-industry-news/financial/pump-up-the-volume-tommy-shares-leap-on-sale-frenzy-565574
financial
financial

Pump Up the Volume: Tommy Shares Leap on Sale Frenzy

Shares of Tommy Hilfiger Corp. surged 10.92 percent, or $1.76, to close at $17.87 on the NYSE Thursday, on news the company is for sale.

financial/news

NEW YORK — Shares of Tommy Hilfiger Corp. surged 10.9 percent Thursday on news the company is for sale.

WWD broke the story that Hilfiger was seeking a buyer on the newspaper's Web site Wednesday evening.

Investors pushed the company's stock price up by $1.76 to close at $17.87 Thursday on the New York Stock Exchange. More than 5.7 million shares changed hands, which is well ahead of the stock's average trading volume of 531,078. Shares of Hilfiger reached a 52-week high in intraday trading, climbing to $18.76. Its 52-week low is $8.47.

The stock was the third-highest price gainer on the NYSE Thursday. The company's market capitalization jumped $140 million, climbing to $1.64 billion from $1.5 billion on Wednesday. There are approximately 91.77 million shares outstanding and the stock's price-to-earnings ratio is 15.14.

The asking price on Hilfiger is at least $1.82 billion, but could go as high as $2.16 billion, according to financial sources. And designer Tommy Hilfiger is expected to get $250 million in cash as a buyout of his contract. J.P. Morgan Chase is the investment adviser. The company could not be reached for comment on Thursday, and the bank did not return calls for comment. The six analysts covering the stock did not release any reports at press time.

Li & Fung USA is one of the companies mentioned by several financial sources as a possible buyer for Hilfiger. The company is a sourcing firm that is now focusing more on global brand management. The parent company is Hong Kong-based Li & Fung Ltd., which earlier this year projected $10 billion in revenues by 2007, compared with $6.1 billion in 2004.

Jones Apparel Group also is being discussed as a potential buyer. In 2003, Jones held exploratory talks with Hilfiger and, while those talks didn't result in a deal, Jones is believed to have had contact again with Hilfiger recently, according to industry and financial sources.

A third company is Liz Claiborne, another apparel giant whose name, along with Jones, is frequently mentioned as a potential buyer of consumer brands.

A portfolio manager last month said he believed that "Liz and Hilfiger" also had an exploratory discussion. He observed Wednesday that targeting a strategic buyer means that "of course you go to Jones, Liz and VF Corp. Who else would you go to? You've got a very limited pool of strategic buyers who can do this kind of deal." Because of this, the portfolio manager believes Hilfiger could end up with a financial buyer as its new parent, noting that the private-equity groups have a "significant amount of money" that still needs to be invested somewhere.

An investment banker who specializes in the apparel sector said Thursday that he didn't believe Claiborne would bite, noting that "past acquisitions by Liz have been with smaller companies that have greater potential to grow organically."

Last week, Hilfiger settled a U.S. Attorney's office probe involving one of its subsidiaries over commission policies. The company agreed to pay $18.1 million to settle the tax probe, and the U.S. Attorney agreed not to prosecute Hilfiger or its subsidiary. The company last week also posted fiscal year 2006's first-quarter results, in which the firm said revenues for the period ended June 30 were $319 million versus $329 million a year ago.

During Hilfiger's conference call last Thursday regarding first-quarter earnings, David Dyer, chief executive officer and president, said U.S. wholesale revenue was $115 million compared with $163 million for the same year-ago quarter. He noted that lower volumes across all businesses resulted primarily from reductions in the number of doors and decreased orders on a comparable-door basis by the company's major customers. The men's sportswear business continued to reflect favorable response to key items in knits, wovens and denims, and the misses' division benefitted from strong customer response to sweaters, skirts and Ithaca polos.

As for the company's European operations, Dyer boasted: "Yes, it is just a terrific business ... Our two biggest countries are Germany and Spain. Business there continues to be very, very strong. In Spain, it is perhaps the only place that we have a major department store in Europe. Mostly our European distribution is through 3,500 specialty store doors."

The ceo added that, in Germany, the company has done well in wholesale and in its company-owned specialty stores. "We have plans to continue to roll out specialty stores in Germany in the future."

Dyer also said there are growth opportunities in Italy, where Hilfiger bought its business back from a distributor. "One of the things that we know from what we have seen comparing ourselves to Ralph Lauren, while we are stronger in many countries, Italy is one that we are not. We're probably about a third of their business in Italy, and we think that it gives us a feeling that there's a great growth opportunity," said Dyer.